Santander Company Is Considering a Project That Requires an Investment

question 18

Essay

Santander Company is considering a project that requires an investment of $700,000. The project is expected to generate an annual cash flow of $280,000 for six years. The cash flow would be received at the end of each year.
The asset is considered 5-year property for depreciation purposes and would be disposed of at the end of the sixth year, at which time it is expected to have no salvage value. The company plans to use MACRS.
Assume the cost of capital is 12 percent and the income tax rate is 40 percent.
Required:
a. Determine the net present value of the asset. (Round amounts to dollars.)
b. State your recommendation to the management of the company.

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Definitions:

Unjust Enrichment

A legal principle that prohibits one person from being unjustly enriched at the expense of another, often requiring restitution to the aggrieved party.

Valid Yet Unenforceable

A legal term for an agreement that meets all the requirements to be valid but cannot be enforced in a court of law due to certain limitations.

Express Contract

A contract in which all the terms are clearly set forth in either written or spoken words.

Dental Emergency

A sudden, urgent medical condition related to the teeth or gums requiring immediate treatment to relieve pain or risk of serious complication.